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November 09, 2004

AMERICA INC PREPARES FOR BATTLE IN THE GLOBAL ECONOMY UNDER THE TRAINING OF THE REPUBLICAN PARTY

I listened to an interview on “Meet the Press” between Carl Rove, Bush campaign adviser and close friend, and Tim Russert. He was talking about the Bush agenda and mandate for the next 4 years. My interpretation of this agenda, is that Bush intends to "downsize" America in order to make it more competitive in a changing and more competitive global economy.

The use of the phrase “down size” is my own terminology and not Carl Rove’s. I used it because what he was talking about sounded a lot to me like corporate talk in regards to maintaining competitiveness and profitability, which usually manifest in some sort of downsizing of workers . Thus, America Inc, under the Bush Administration, is embarking on a strategy not unlike corporations and industries, that will have a profound effect upon the American worker and middle class.

How does America Inc become more competitive in the global market against China Inc, India Inc and the European Union Inc? Well, for one thing, the administration is looking to change the complicated tax system and structure and possibly do away with the Income tax in favor of sales tax. Aside from there effort likely resulting in a regressive tax system (meaning that the tax burden decreases as income rises), this will somehow suposedly save Billions of dollars each year in processing cost and make us more competitive with nations that have less complicated systems of taxation. Also, rove mentioned improving the educational system so that America can produce the brain power to fuel comparative advantage.

What was not mentioned is the fact that the biggest threat to America Inc comes from its loss of comparative advantage in regard to the wage and salary component of product cost. Now that intellectual capital and technical know how has grown in developing nations such as China and India, who together have nearly a third of the earths population, that comparative advantage for the US has waned significantly. That advantage used to give our products the advantage over the cheaper goods of developing nations on the bases of quality. Now that the quality gap has shrunk, the low wages of China and India are giving these nations the comparative advantage over the USA. The 20 year running trade deficit clearly shows that we are losing our comparative advantage.

So how will America Inc handle is biggest comparative disadvantage, which are labor and environmental cost components of products? Well we have all heard the political ads about Bush given tax breaks to companies that sends jobs oversees. I do not know how true that is, but I never heard the claim rejected as erroneous from the Bush spokes people. On top of that, most people are very aware of the “out sourcing” phenomenon that has received much attention in the media. Thus, the Republican Party, which have evolved to be seen as anti-worker and pro corporation, will become even more so.

The republicans have always been against Unions and increase in minimum wage legislation, even when America enjoyed a dominant comparative advantage in many industries and products and record profit of corporations. Now, they even have more incentives to be anti-worker, given that Americas wage success and high standard of pay relative to others like China, India, and even Russia, has put the nation in its current competitive disadvantage. Hence, one cannot fathom how the USA will be able to compete with nations with much less labor cost, while continuing to offer one of the highest rates of pay in the world, for the average citizen. Thus, one can expect to see the stagnation of real wages for the average worker….at best, which will be offset by increases in income and wealth of the owners of capital and businesses.

The future of America is dependent upon the future of its industries and corporations in the global marketplace. Nations like China and India have gained tremendous technical know how and intellectual capital, plus they have a glut of cheap labor to exploit among its billions of people. If and when these nations create their own home grown industries, their pricing advantage will given them the market advantage, to the detriment of similar industries in the USA who will lose revenue and profitability in the long run. Thus, these corporations have to go to the source to take advantage of the cheap labor resources to remain competitive….and that is what they are doing at increasing rates. This reduces the demand for the American worker in many industries which gave birth to America’s large middle class. They/we, America Inc, has no other option.

As China and India become more developed, the competition for energy resources will only become more intense as their increase demand will only bid up the price of Oil in the world market, eventually putting great inflationary pressure on the US economy. I believe that our actions in the Middle East are actions taken to secure our control over large reserves of Oil, before China becomes a Super Power to the degree of the Old Soviet Union and then partner up with Oil Rich nations of the Middle East and work as a check against US power and influence in that region. When the Soviet Union was still a power, the USA had to be very careful of its actions against certain nations who were allies of the USSR. They do not want that to happen again with China, so they are rushing in to change the politics and dynamics of the region so that government are pro Western and pro USA.

In summation, unless you find your self in the top quintile group in regards to wealth in this nation, you can remove those shades because the future will not be as bright as our recent past.